How to Invest in Share Market?

Investing in the share market can be tricky especially if one is a beginner. However, the process is very streamlined now that all the tools to invest in a share market are available electronically. Curious about how to invest in share market? Here is the investment process.

How To Invest Money In Share Market

Always wondered how to invest in shares as a beginner? The following guide will detail this process for you. Keep in mind that there are two types of share markets you can invest in. These are primary and secondary share markets as detailed below.

1. Investing in the Primary Share Market

It is typical for corporations to offer up their shares on a primary share market through a process known as an initial public offering. This means that when one chooses to invest in the primary share market, they can do so through an initial public offering or IPO. To invest in both primary and secondary markets, it is necessary for a trader to have their own Demat account which will hold electronic copies of their shares. Additionally, a trading account is also important which will help in buying and selling shares online.

In a few rare cases, it is also possible for a trader to apply directly from their bank account. Based upon the market’s response to the initial public offering, a trader will be allotted a select number of shares. Once all the IPO applications are received and counted by the company, those shares are allotted based on demand and availability. It’s quite easy to apply for an IPO through your net banking account via a process that is known as Application Supported by Blocked Amount (ASBA).

As per the ASBA process, if one applies for shares that are worth ₹1 lakh, instead of being sent to the company, these funds will be blocked into their bank account instead. Once you receive your allotment of shares, the exact amount will then be debited with the balance being released. All applications that are sent to IPOs are required to follow this protocol. Once shares are allotted to traders, they are listed on the stock exchange, and you can begin trading them within about one week’s time.

2. Investing in the Secondary Share Market

The secondary market is usually what traders are talking about when they refer to stock market investments. Curious about how to invest in stock markets as a beginner? Here are a few key steps toward doing so:

Step 1: Similar to a primary market, a secondary market also requires that you have your own Demat and trading account. This is the starting point to invest in the secondary market. Both of these accounts should be linked to a pre-existing bank account for a seamless transaction.

Step 2: The next step is to log into that trading account. Then go ahead and choose the shares that you wish to sell or buy. Ensure that you have the requisite amount of funds in your account that can help you buy the shares. Alternatively, if you wish to sell, make sure you have the right number of shares before you choose to sell.

Step 3: Next, decide the price at which you want to buy a share versus sell it. Wait for the buyer or seller to reciprocate to that request.

Step 4: Complete your stock market investment transaction by transferring the money/shares and you will receive money/shares.

As detailed above, the steps for how to invest in stock markets are very straightforward and simple. Ensure that you are mindful of the time which you wish to remain invested for and the financial goals you want to achieve from your investment.

Documents required for opening a Demat/Trading Account

When it comes to how to invest in the share market, one key aspect is the documents necessary to open your demat account and trading account. They are as follows:

  • Applicant’s PAN Card
  • Applicant’s Aadhaar Card
  • Applicant’s name on a canceled cheque from their active bank account showing ISFC Code, account number, Account holder’s name, and signature.
  • Documents detailing that the applicant earns a steady income.
  • A proof of your address that is based on a list of documents that have been accepted by your broker, depository participant, or bank
  • Passport-sized photographs of the applicant.

Also Read Opening Demat Account without Aadhaar Card.

Things to keep in mind before investing

Stock market investments are not as difficult as they seem to those who have never tried them before. However, it is also possible to be swept away by the world of trading without being rewarded by it in the long term. To prevent this outcome, it’s vital to keep in mind the following points before investing.

1. Diversity in a portfolio is healthy

The more diverse your portfolio, the healthier it is. If a particular asset class dominates in your portfolio, then when that instrument is going through a low patch your portfolio will not offer a steady stream of funds your way. Hence to offset the low periods of one asset class, financial advisors recommend adding alternative asset classes. For instance, equity is often offset with investments in bonds or other debt instruments. This balance in a portfolio can secure one against a period of market crises.

2. Understand your investor profile

This is crucial before you go ahead and invest in the market. Your investor profile can reveal what kinds of instruments are best suited to your palette. By knowing which instruments work well for you, you can ensure that you are taking on the amount of risk that is best geared to your lifestyle.

3. Plan your investment journey

You can also avoid potential pitfalls down the line if you have an investment plan such as the amount of revenue you wish to earn from your investments and the time horizon you need to remain invested to earn that amount.

Conclusion

When it comes to how to invest in share market, certain key considerations should be kept in mind. These include planning your investments, understanding your risk appetite, and ensuring you go for diversity in your portfolio.

Open Demat Account at IIFL